Australia is planning to launch a new “payments and crypto reform plan” that will see the government introduce clearer obligations for crypto businesses, hence more protections for consumers. Part of the plan is to launch a central bank digital currency (CBDC) and create a licensing framework for cryptocurrency exchanges as part of the big overhaul of the vibrant Australian crypto economy.
The plan which was launched by Treasurer Josh Frydenberg is to make Australia a leading country in the crypto space. He said, “The comprehensive payments and crypto-asset reform plan I am announcing will firmly place Australia among a handful of leading countries in the world.”
At the moment, purchasing and selling of crypto assets in Australia are not highly regulated. However, the new regulations will cover online transaction providers like Alphabet Inc’s Google, Apple Inc, and “Buy Now Pay Later” (BNPL) services like After Pay Ltd. This would be the end of the non-supervised operations they have enjoyed in the past years.
According to Frydenberg, the new regulations will ensure Australia retains its sovereignty over payment systems. He says, “If we do not reform the current framework, it will be Silicon Valley that determines the future of our payment system.”
Central Bank Digital Currency
One of the reforms that can impact the Australian crypto community is the possibility of a central bank digital currency (CBDC).
Even though the cryptocurrency boom in Australia has been one of the biggest in the world, there is concern for its longevity when a CBDC is launched. The Reserve Bank of Australia was one of the leading financial institutions to claim it is not convinced by the cryptocurrency boom. It argues that a central bank-issued digital asset like a CBDC could make cryptocurrencies irrelevant.
The bank noted that a CBDC will offer consumers protection from volatile digital currencies while also giving them access to secure crypto-centric systems like the blockchain network.
The Australian Securities and Investments Commission (ASIC) has also taken a back seat when it comes to cryptocurrencies. The past month, its chair Joe Longo warned consumers to approach digital currencies investments with great caution. He was concerned about investors investing in assets without fully understanding them.
Australian crypto taxation
So far, Australian crypto taxation regulations remain unclear. The Australian Taxation Office (ATO) currently considers digital currencies as assets and subject to capital gains tax. However, there have been issues regarding the nature of taxation.
While the tax office would want all gains on crypto to be taxed, most users are unaware of their obligations. That explains why most crypto holders fail to submit their tax reports on crypto. The ATO has since taken to warning crypto users of their tax obligations to ensure compliance.
Also, the fact that ATO considers every transaction involving crypto and every conversion between the Australian dollar and crypto a taxable event, makes it an expensive prospect. Investors may fail to cash out or move their positions depending on their trading strategies to avoid paying too much tax.
The tax office has already started sending messages to those it deemed as having failed to comply with the tax implications. However, that alone is not enough. There is a need to streamline the taxation landscape and educate crypto traders on what is taxable, the necessary taxation documents needed, taxation timelines and how to file the returns.
To help clarify the taxation issues, the government is planning to introduce a new crypto taxation policy next year.
What are the possible implications of the upcoming crypto reforms?
The Australian crypto world is torn on whether there’s a need for regulations or not. Most of those opposed to the new regulations believe it would stifle innovation and most crypto companies could not operate normally.
They also believe that regulations go against the main idea behind digital currencies. Decentralised currencies are made such that they do not have a single control point. No authority like the government or the central bank should have the final say on operations. Instead, the changes and development are based on community consensus.
Through regulations, there’s the concern that digital assets might become another form of fiat currency and/or traditional asset. This means the industry will have to once again start grappling with the issues it faced with centralised finance.
At the same time, a majority of the crypto world has been calling for regulations. They believe regulations would streamline the industry and ensure growth.
Some of the top reasons for crypto regulations include:
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Consumer protection
Consumer and investor protection remains the leading reason for crypto regulatory changes. Crypto investors have been losing money to scams and other issues in the crypto world. Currently, the Australian crypto community is losing more than A$6 million every month to crypto scams. These are only the reported figures, meaning there’s more that is lost.
Australian financial institutions and payment service providers have been campaigning to have all payment processors regulated. It is the only way to ensure the consumers are protected while transacting.
AfterPay, one of the leading Australian financial service providers, through its spokesperson is supporting the new regulations. They stated they agree with “any approach that takes into account consumer benefits from the innovation and competition Afterpay has brought to the market”.
Regulating crypto service providers also protects the consumers from exorbitant service fees. By directing the market, the government ensures fair competition among the service providers, which translates to fair service rendered to consumers.
The interest of the investors is also covered in the new regulations. Some of the crypto-related service providers have raised debanking concerns, as they are denied access to banking services. Through the proposal, the Treasury will allow the Council of Financial Regulators to consult on the best way possible to avoid the denial of services.
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Keeping up with other countries
Other than Australia, several other developed countries are looking to streamline their crypto services. The new crypto regulations proposal is not the first time Australia has looked into streamlining crypto operations. Already, an Australian Senate committee has been collecting views from the crypto industry experts on how to make Australia a crypto hub.
Again, Australia is not alone in trying to make the country a leading destination for digital currencies. Countries like the US are also at advanced stages of developing crypto regulations.
Earlier in the month, the US Senate Finance Committee had already held a crypto hearing with some of the leading crypto experts on the state of regulations in the country. In the meeting, they agreed that the lawmakers needed more knowledge to create the right regulations. They also looked into various crypto issues like stablecoin regulations, crypto volatility and consumer protection.
There’s a likelihood that crypto companies and investors will prefer the countries that have streamlined crypto regulations. Therefore, by enacting these proposals, Australia is in the best position to become the crypto hub it seeks to achieve.
Bottom Line
Lack of clarity is a challenge when it comes to crypto regulations. So far the financial agencies have tried to regulate the industry but have fallen short due to the lack of guidelines. There’s always the question of what qualifies to be a digital asset.
The lack of clarity on whether digital assets are considered capital assets or regular assets is also persistent. The changing crypto landscape and new use cases of crypto have also made it difficult to have clear regulations.
The new reforms look to change that, aiming to streamline the market, and protect consumers and investors without stifling innovation and development in the industry.
